Sunday, May 24, 2015

Ontario's electricity rates are rising for most, and that's not due to external factors nearly as much as the deliberate policies of the Ontario government couple with the performance of the system operator (IESO). I've written recently on traders in the Ontario market benefiting from low Ontario electricity prices, and on suppliers manipulating government policy and practices making larger entities more influential. This post will focus on the "Class A" global adjustment which, because it works to eliminate any possibility of a market in Ontario functioning as a tool to indicate the adequacy of supply levels, is the worst "stakeholder" driven policy of all.

On August 17, 2010, the Ministry of Energy news release on the planned 'Class A' scheme to reduce electricity costs for the province's largest consumers of electricity stated:

Ontario is proposing to help the province's largest industrial companies and manufacturers conserve energy in a way that will have little to no impact on electricity bills for Ontario families.

I've checked.
They were wrong.

Since the process was introduced for 2011 I estimate the direct "little to no impact" has been over $2 billion and has grown to a cost of over $750 million a year. [1] This direct cost shift has an impact of about 0.66 cents/kWh ($6.64/MWh), which makes it essentially a new charge equivalent to the retiring, for 2016, debt retirement charge.

Despite the high cost of the class shift, which will be explained further, I'll argue there are secondary impacts from the behaviour encouraged by the mechanism.

The most widely cited figures for demand in Ontario come from the IESO, which ubiquitously displays "Ontario Demand" but is more discrete in defining the term. From their latest monthly reporting:

Ontario Demand represents the total energy that was supplied from the IESO Administered Market for the sake of supplying load within Ontario.

So it's supply, and not metered demand. "Ontario Demand" is something the IESO reports on in 5-minute intervals, hourly, weekly, monthly, etc. The monthly totals of "Ontario Demand" match the "Energy Demand" totals in documentation created with the IESO's 18-month outlooks.
Table 3.3.3 of the latest spreadsheet breaks down "energy demand" into:

LDC [local distribution companies] Consumption

Wholesale Consumption

Generator Consumption

Losses

Only 2 of these categories should be considered consumption: wholesale consumption presumably being the metered consumption of large wholesale consumers, and LDC consumption measuring power delivered to the LDCs, but still not at the end consumers' metered consumption.

The IESO data is often cited for supply and demand figures in Ontario, but it provides neither: the IESO reports on generators attached directly to the transmission grid. Generators contained within the domain of Ontario’s multiple distribution grids are called embedded generation, and escape most IESO reporting.

These are the IESO’s figures for “Grid-Connected Electricity Production” the past 2 years:

Add the numbers for each of 2013 and 2014 up and generation is essentially unchanged at 154 TWh.

To estimate “embedded” generation a look at the OEB data is necessary because it “Includes both Tx (direct) and Dx (embedded) connected generation”: